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Whether you have lingering student loan debt or you’re considering heading back to school and using loans to finance your education, this debt is likely an obstacle that stands in the path between you and financial independence.

But student loan debt shouldn’t keep you from pursuing your financial independence dreams. There’s a lot that you can do to ensure you’re getting yourself out of debt as quickly as possible and paying off those student loans fast.

How do Student Loans Work?

Before we get to the tactics to help you dig yourself out of debt faster, it’s important to understand exactly how student loans work. With a student loan, you’re borrowing money from the federal government or a private lender to pay for your education. You’ll pay back the money you borrowed, plus any interest.

This interest is what can get confusing for people — and what can get people deeper into debt than they realize.

Student loans should only be used to pay for qualified educational expenses, like tuition and fees, housing, and books — not for non-essential items like clothes and travel. Since you have to repay the money that you borrow — and you don’t want to be in debt for long — the less you borrow, the better.

Scholarships and grants are completely different from student loans. While loans need to be repaid, scholarships and grants don’t.

There are three things that you need to pay attention to on your loan, which will impact how much your education will cost you: loan principal, interest rate, and repayment term.

Loan principal: This is how much you borrow to pay for your education. So if you borrow $10,000 to pay for school, your loan principal is $10,000.

Interest rate: Lenders make money by charging you interest on the loan. The interest rate is the percentage that they are charging you and this interest rate can either be fixed (one interest rate for the entire loan term) or variable (the interest rate fluctuates).

Repayment term: This is the length of time you have to repay your loan. Federal loans come with a standard 10-year repayment term, though you can extend it if you need to. Private loans come with varying repayment terms.

How your repayment term affects your total cost

These details are really important to help you understand just how much that loan is going to cost you. Let’s say you borrowed $10,000 and you plan to repay it with a 10-year repayment term and a 6% interest rate.

Your monthly payment would be $111 per month and at the end of repaying your loan, you’d have paid $3,322 in interest. That $10,000 actually costs you a total of $13,322!

If you decide to lengthen your repayment term and repay the loan over 30 years, rather than 10, your monthly payment goes down to $59 per month. Tempting, right?

Well by the time you pay off this loan you will have paid $11,585 in interest. That $10,000 will actually cost a total of $21,585. That’s an $8,263 difference — nearly as much as your original loan!

But, there’s an even bigger cost we haven’t talked about: missed opportunity cost. For simplicity, let’s say that the interest on your loan was an additional $275.43 per year over 30 years (since you extended your loan repayment term to 30 years). If you instead invested that amount and earned an average return of 5% each year, you’d have $18,299.25 after 30 years.

By extending your repayment term to 30 years from 10, you’re losing out on an additional $18,299.25 that you could’ve put towards your financial freedom.

That’s why understanding how student loans work is important before we talk about paying them off quickly.

Want to try out your own calculation? We built a compound interest calculator that’s easy and free to use.

Types of student loans

When it comes to student loans, there are two types of loans you can use: federal student loans or private student loans.

There are a few different types of federal student loans but they generally come with low, fixed interest rates. And they come with some perks — repayment is more flexible than with private loans. If you can’t afford your loan payment, you can opt for an extended loan repayment period or if you lose your job or are unable to work, you could qualify for forbearance or deferment. They also offer loan forgiveness opportunities for some people working for the government or for a not-for-profit organization.

If you refinance your federal loans with a private lender, you’ll lose these protections. For some people — especially people working towards loan forgiveness — refinancing is worth the loss of benefits.

Private student loans offer interest rates that are based on your financial profile, usually your income history and your credit score. Borrowers with better financial details can often qualify for lower rates. But if you don’t have a great income (and most don’t while they’re in school), interest rates can be high. They also usually don’t offer the same forbearance and deferment options that federal student loans provide.

Alternatives to Student loans

Debt of any kind, including student loans, can make your path to FI excruciatingly long. So if going back to school is high on your list, it is important to try to do it while incurring as little debt as possible.

(Already have debt? Don’t worry. We’ll get to great ways to pay it off fast).

• Look for grants and scholarships: this is free money that you don’t have to repay, unlike student loans.
• Opt for a less expensive school: costs can range widely, so take the time to price out your options at a few different schools.
• Get employer tuition assistance: if you’ll be working while going to school, ask your employer if they offer tuition assistance. They may offer to pay for a portion of your tuition.
• Cut back: if you have to take out loans, you can take out less by cutting back on your spending.

How to Pay Off Student Loans Fast

There may be situations where student loans are unavoidable. Or, you may have already finished school and are now trying to work through paying off the debt you racked up.

Debt doesn’t have to be your reality forever. Getting yourself out of student debt and on the path to financial independence requires a new strategy.

Enroll in auto-pay

This is a simple action and can reduce your interest rate slightly. Most lenders offer an interest rate reduction when you enroll in auto-pay, so set that up today! Reducing your interest rate is a great way to lower the overall cost of your loan.

Make extra payments

If you want to pay off your loan quickly, making extra payments is key. You don’t need to wait until you receive a big windfall like a tax refund or bonus at work (though you should put those towards your student loan as well). Get in the habit of making regular additional payments on your loan.

There are a few different ways you can do this. You can make additional payments during the month, anytime you have additional cash. You can “round-up” your loan payment, for example, paying $150 per month rather than your required payment of $111. When you get a raise, you can use the entire raise amount to increase your loan payment.

Quick tip: if you’re going to make additional payments, ask your loan servicer if they can apply the additional payment to your principal balance. You’ll need to ask for this in writing. When you reduce your principal amount, you reduce how much you’ll be charged in interest. For example, if you have a $10,000 loan that charges 5% interest and you make an extra principal payment of $500, you now will only have interest of 5% being charged on a principal balance of $9,500.

Refinance

If you’re not using benefits that come with a federal student loan and you have a stable income, refinancing your loan will help you pay off your loans faster and save money. When you refinance, you can combine multiple loans into one private student loan with a lower interest rate.

Using the example above, you have a $10,000 student loan at a 6% interest rate that you’re going to pay off over the next 10 years. Instead, you refinance that loan to a 3% interest rate and continue making the same monthly payments. Just by refinancing to a lower interest rate and continuing to make the same monthly payment, you’ll pay off your loan 17 months faster!

Why would a lender offer you a lower interest rate than another lender? To get your business. They make money off the interest payments that you make monthly. So if a new lender can get your business by offering a slightly lower interest rate than your current lender, they’ll go for that (assuming you’re a credit-worthy borrower).

How to refinance student loans

Refinancing your student loans is simple, but there are a few steps involved to make sure you’re getting the best deal.

Compare interest rates

Not all private loan lenders offer the same rate, and as we’ve seen, interest rates can impact how quickly you pay off your debt. To ensure you’re getting the best rate possible, it’s a good idea to check rates with multiple lenders.

You can only refinance student loans with private lenders. That could be your local bank or credit union or working with an online lender. There are now dozens of online lenders that offer competitive rates and terms, depending on your eligibility.

But who will you qualify with and what is the exact rate they’ll offer you for your loan refinancing? It can be a lot of work to research lenders and then get pre-approved with each one individually.

That’s where Credible comes in.

Credible is by far our favorite tool to help us find the best rate. Credible allows you to compare rates across all the major providers without filing separate applications for each lender or giving all of them your personal information. This saves time, eliminates getting spam blasted, and can easily save thousands of dollars per loan that you refinance. Plus, it's free to use, and comparing the offers won't impact your credit score.

Compare Student Loan Rates on Credible

If you’re going to make the smart move of checking rates before you refinance your loans, there’s no better tool to use than Credible.

Keep important documents handy

You’ll need to submit a few specific documents to qualify for loan refinancing, so start collecting them early. You’ll need to verify your proof of income (paystubs, tax returns, and W-2s might be needed), your identity, and citizenship (driver’s license, passport, and social security number), and your current loan information.

Choose a lender and loan term

Once you’ve compared lenders and the rates they’ll offer you, it’s time to pick the best option available to you. Check interest rates, loan terms, and any other fees the lender may charge. If you compare rates using Credible, you can rest assured that the lenders they offer rates from don’t charge prepayment penalties, loan application fees, or origination fees.

A final note on refinancing

Student loan refinancing is one of the best things you can do to help get you out of debt faster. It can lower your interest rate, lower the amount that you pay in interest, and help you accelerate your loan payoff.

While loan refinancing isn’t the right move for everyone, especially for people working towards loan forgiveness, it can be a huge money-saving opportunity for people with high-interest rates or private student loans.